ethical investing guide

Most financial advisors agree that ethical investment has come a long way from its early days, when returns could be slim to none. However, with a smaller pool of companies to invest in, funds are necessarily going to have fewer options with which to maximise returns for their investors.

Certain ethical funds have had to re-think their strategy. In some cases, fund managers have opted to loosen the rules in order to expand their options for investing; this may result in, for example, investment in companies that practice limited medical testing on animals, or oil or car companies that hold a relatively good environmental record.

However, having a clear conscience can be lucrative as well. The top-performing ethical fund, the 200mGBP F & C Asset Management's Stewardship Income Fund, came in at 4th place in the three years to 2005, amongst its competitors which include non-ethical as well as ethical funds.

There is also an argument that, as the World Trade Organisation increasingly cracks down on companies considered to be polluting or exploitative, the negative publicity will work alongside new regulations to make these businesses less competitive, and their ethical counterparts a better choice.